How do first time buyer mortgages work?

2020-11-09

Investing

Help To Buy

Securing your first time buyer mortgage doesn’t have to be a headache. We work with lots of individuals, couples and families to help them buy the home of their dreams.

We do this by clearly explaining the requirements the lenders have in place for mortgages. Then, it’s a simple case of proving your ability to fulfil those requirements.

Requirements for first time buyers

There can be a lot of paperwork involved in getting your mortgage application together. However, all of this paperwork relates to just four different requirements.

Proof of secure income
Proof that you can afford the mortgage you’re applying for (your rent payments and savings habits will show your level of affordability)
Proof of deposit (understanding how to save for a mortgage can help you secure the mortgage you want)
Proof of a good credit history (bills paid on time and very little, or no, debt)

Mortgage limits for first time buyers

The Central Bank has placed a rule on lenders with regards to how much they can lend to people seeking a first time buyer mortgage. Currently, the limit you may borrow if you are a first time buyer is 3.5 times your gross annual income.

Banks have some discretion to exceed this limit. However, these exceptions are not easy to secure and your mortgage process will be easier if you work with the 3.5 times limit.

Your deposit is your superpower

We cannot overestimate the importance of a deposit. Saving regularly for a deposit is one of the most powerful ways to secure a mortgage. Apart from having a lump sum of cash to go towards your property purchase, evidence of saving for a deposit also reassures lenders that you’re a good credit risk.

In general, first time buyers need at least a 10% deposit. (The current Help to Buy scheme has increased from 5% to 10%.)

Your parents or grandparents may want to gift you the funds you need for a deposit. Some lenders are fine with this, but they still want to see evidence of a regular savings habit. Therefore, saving for a deposit is a win/win approach to securing your mortgage.

Calculate affordability of your mortgage

We work closely with all of our clients to ensure that they can afford the repayments for the mortgage they’re applying for. Lenders will want to see evidence too of affordability.

Interest rates will change as your mortgage term progresses. It’s important to calculate whether you can afford your mortgage even with a 2% interest rate increase.

Demonstrating how secure your income is

You need to prove that you are in secure employment. As a rule of thumb, lenders generally prefer that you’re on a permanent contract with your employer.

Lenders want to reduce the risk of lending to a person who may not be in a financially robust position. They take a prudent approach to mitigate risk.

Make sure you’re employed for at least 12 months and have successfully completed your probationary period before applying for your mortgage.

Proving sound financial management

Alongside a regular savings habit, there are other ways to prove financial responsibility. And the banks will want to see this. These requirements include:

Smart spending habits (live within your means)
No online gambling
Very little personal debt (zero personal debt is even better!)
Credit cards cleared monthly
No missed payments on loans
Simplicity - not too many bank accounts

Once you have all these requirements fulfilled, the mortgage approval process doesn’t take long.